Summit on Responding Locally in a Global Economy

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Summit on Responding Locally in a Global
Economy

• Detroit, MI
• April 5, 2006

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General welcome and opening remarks

• Co-chairs
• Mike Brennan, President CEO, United Way for
  Southeastern Michigan
• Marc Levy, President CEO, United Way of Greater
  Dayton Area (Ohio)
• Sheila Wisdom, Executive Director, United Way of
  Windsor (Canada)

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Michigans Economic FutureA Marathon, Not A
Sprint

• Dana Johnson
• SVP and Chief Economist
• Comerica Bank
• April 5, 2006

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• For a free subscription to my economic briefs and
  data visitcomerica.com/econsubscribe

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Changing Dynamics of the North American
Automobile Industry Crisis or Opportunity for
Michigan?

• Kim Hill
• Director, Automotive Communities Program
• Associate Director, Economics and Business Group
• Center for Automotive Research
• Ann Arbor, MI

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• From the New York Times, January 24, 2006
• "This may not be the end, but it is certainly the
  beginning of the end of the automobile industry
  as we knew it."
• Gary N. Chaison, Professor of Industrial
  Relations, Clark University (Worcester, MA)

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Some days.
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First, some questions

• Is the NA industry dying?
• Is all the new investment occurring in the south?
• Is the industry moving south?
• Is labor a big issue/asset?
• Why would new investment come to old company
  towns?

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An integrated industry
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• Is the North American auto industry dying?

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Stuck on a Plateau! Total U.S. Sales of Light
Vehicles1992 - 2007
17.4
17.2
17.0
17.1
16.9
16.9
16.6
16.8
16.9
15.6
15.0
15.0
14.7
15.1
13.9
13.3
Millions
Year
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Truck sales headed
in the right direction??
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Employee deal for everyone is over now for trucks!
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SUVs CUVs
Source CSM, JD Power
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Cant understand why sales have tanked?
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2004-2008Change in N. American vehicle
production capacity
4.0
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GM Ford shutdowns Retreat to the core?
Lansing M - 2005
Lansing Craft Centre-2006
Lansing Metal - 2006
Portland - 2006
Flint Engine 1 - 2008
Wixom 2007
Ypsilanti SPO - 2007
Oshawa 1 - 2006
Oshawa 2 - 2008
St. CatherinesPowertrain -2008
St Thomas 2008
Windsor Casting 2008
Linden - 2005
Baltimore - 2005
Pittsburgh Metal - 2007
Lorain - 2005
Moraine - 2006
Batavia 2008
Spring Hill - 2006
Atlanta 2008
St. Louis - 2006
Nine more Ford shutdowns TBD
Doraville - 2008
Oklahoma City-2006
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Roads heading south!International supplier and
manufacturer locations
MI
MMM-USA
HONDA EAST LIBERTY
HONDA MARYSVILLE
I-75
TOYOTA-PRINCETON
I-65
OH
IL
SUBARU-TOYOTA
IN
TOYOTA
TOYOTA-HUNTSVILLE
KY
NISSAN
SPARTANBURG-BMW
TN
SC
AL
GA
MS
KIA-WEST POINT
TX
HONDA-LINCOLN
HYUNDAI- HOPE HULL
MERCEDES BENZ-VANCE
NISSAN-CANTON
TOYOTA-SAN ANTONIO
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Transplant assembly facilities as of 2005
64,260
Source Automotive News, Harbour Report, CAR
research
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New International assembly facilities 2006-2008
7,500
Source Automotive News, Harbour Report, CAR
research
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Major automotive investments from 1993-2005
Source Book of Deals, CAR
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U.S. / Canada production by region
ACP Ontario, Michigan, Ohio, Indiana, Illinois,
Missouri Non-ACP Rest of Canada and United States
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Automotive manufacturing in the Great Lakes
region
Automotive Communities Program
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Why NorthTool Die facilities compared to
other automotive states
Source 2002 Census Bureau
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Why North Large numbers of mechanical and
industrial engineers
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Michigan The Automotive Research Development
Center
65-75 of Annual U.S. Auto RD 10.7 billion
(2003)55,000 jobs
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Major automotive investment has an enormous
economic and employment impact on the regional
economy.
Why should we care?
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2003 average annual salary (U.S.)
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Vehicle assembly is a huge driver of economy
TypicalAssembly Plant2,000 Jobs
.56 Powertrain Plants or 560 Jobs
.56 Stamping Plants or 850 Jobs
3,800 Parts Component Jobs or a Total of 7,210
Manufacturing Jobs!
and another 7,700 Non-manufacturing jobs for a
total of 14,910 jobs.
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Approximate National Automotive Manufacturing
Multiplier
Automotive plant closures (and openings) affect
regional economies

• 7.5

OR 6.5 additional U.S. Jobsfor each Job at
a U.S. Motor Vehicle Firm
Source Average of many studies conducted by the
Center for Automotive Research, including
Contribution of the U.S. Motor Vehicle to the
Economies of the United States, California, New
York, and New Jersey, Center for Automotive
Research, 2003, Contribution of Toyota to the
Economies of Fourteen States and the United
States in 2003, Center for Automotive Research
2005
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Automotive jobs drive all wages up

• Grant County (Indiana) example 10 county
  region
• A county with significant automotive industry
  employment (gt6) has higher salaries in all
  industries.
• On average all jobs in a county will pay between
  15 and 18 more than a similar county with low
  automotive industry employment.
• This is true even in fields unrelated to
  manufacturing or the automotive industry.

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Bottom line

• Retain and attract automotive investment
• Look to attract suppliers to the new domestics
• Emphasize assets (supplier infrastructure,
  educational levels, etc.)
• Automotive RD concentration
• Competition for new sectors Bio/Nano/Homeland
  is fierce
• 49 other states want a piece of that pie
• Once a strength, always a strength
• Is Massachusetts attempting to attract auto?
• Highest job impact numbers of any industrial
  sector
• 6.5 jobs nationally for every one job in an
  assembly plant

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Canadas Auto and Auto Parts Industry The
Perfect Storm How long will it last? Louis
Thériault Director Canadian Industrial Outlook
Service April 5, 2006
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Agenda

• Structure of the industry
• Macroeconomic drivers
• Financial performance

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Auto and auto parts manufacturing Share by
sector, 2005
4
29
67
Total Production 119 Billions
Sources Conference Board of Canada, Statistics
Canada
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Auto and auto parts manufacturing Share by
sector - 2005
8
36
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Total Employment 232,000
Sources Conference Board of Canada, Statistics
Canada
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Canadas outlook 200607

• Domestic demand carrying Canadas economy
• Bank of Canada rate hikes also close to being
  over
• Better trade performance will contribute to 3.0
  percent growth in 2006 trend continues into 2007
  
• Oil and gas prices will eventually ease, taking
  some pressure off the Canadian dollar
• But growth will be unbalanced, west to east

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U. S. pressure points

• United States twin deficits current account and
  fiscal
• High energy prices
• U.S. property markets

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U.S. economic engine

• Despite imbalances U.S. economy chugs ahead
• Energy prices expected to ease
• Interest rate hikes to end soon
• Modest devaluation in exchange rate

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The Loonie and the oil price
US/CND
WTI US
Sources U.S. Energy Information Administration
Statistics Canada The Conference Board of Canada.
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Interest Rates (90-Day T-Bill) Quarterly 200007

U.S.
Canada
Sources BEA CBoC Statistics Canada.
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Exports of auto and auto partsWeak short-term
outlook

Sources The Conference Board of Canada
Statistics Canada.
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Auto and auto parts Prices remain low

Sources The Conference Board of Canada
Statistics Canada.
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Auto and auto partsRevenues on a slow recovery
path

Sources The Conference Board of Canada
Statistics Canada.
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Auto industry Cost structure(share of total
costs, 2005)
4
9
87
Sources Conference Board of Canada, Statistics
Canada, Company Reports
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Auto and auto partsProfit margins by industry
segment (percentage)
Sources The Conference Board of Canada
Statistics Canada.
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Highlights

• Limited upside potential for price increases
• Dollar hurts
• Demand is fragile
• Costs reductions are required
• Motor vehicle assembly flat
• Diversification is taken place
• Come back of the Big 3 in the medium-term
• Parts manufacturing is key heading forward

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Risks

• High risk factors
• The dollar
• Oil prices
• Limited risks related to
• Short-term interest rates
• Income growth
• The consumer
• Record high debt level
• Negative savings rate

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www.conferenceboard.ca
www.conferenceboard.ca
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Lou GlazerPresidentMichigan Future, Inc.
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Questions and comments